Outside Investment Fuels Vertical Growth at Guayaki

Even as the brand enjoys a period of prodigious growth and takes on outside investment for the first time in its 20 year history, Guayaki is focused on staying the course.

Since its founding in 1996, the company, which produces ready-to-drink (RTD) yerba mate teas and energy drinks as well as dry products, has followed a long-term vision for success guided by a commitment to environmental sustainability and ethical business practices. An early arrival to the natural “clean energy” drink category, Guayaki has long charted a steady course of incremental annual growth — and that has exploded over the past two years. Sales of the company’s canned energy line, which are sold in retailers like Whole Foods, are up 66 percent through Sept. 2017 to over $31 million, according to data from SPINS.

Perhaps most impressively, those achievements were made independently, making the recent announcement of an outside investment from Sonoma Brands, the food and beverage-focused fund headed by Krave Jerky founder Jon Sebastiani, a significant new chapter for the Northern California-based company.

Yet in speaking with BevNET days after the investment was confirmed, co-founder David Karr was keen to emphasize that the deal allows Guayaki to continue operating independently while supporting and enhancing the brand’s longstanding mission, rather than diverting from it.

“To be honest, we haven’t been thinking about taking institutional money and we’re not 100 percent against anything,” Karr said. “But there were no terms of the agreement that required us to make any short-term decisions. In other words, there were no strings attached. There’s no exit.”

A combination of factors played into the deal with Sonoma Brands, beginning with a strong personal connection. In Sebastiani, a fellow Northern Californian, Karr and his partners found an entrepreneur who believed in their work in building both a product and a socially conscious company. In an interview with BevNET sister site Project NOSH, Sebastiani praised Guayaki’s mission and described it as an “iconic brand” in the clean energy category.

Guayaki filed a Form D with the Securities and Exchange Commission (SEC) in October, announcing almost $6 million in new funding. Neither Karr nor Sebastiani would discuss the terms of the investment. The newly launched second fund at Sonoma Brands, which made Guayaki its first investment, will seek to invest between $5 to $12 million in companies with roughly $1 to $15 million in revenue.

“They are very culinary-forward thinkers, they understood food and beverage and they are in our neighborhood in northern California so we could meet and connect and share stories,” Karr said of Sebastiani and Sonoma Brands. “We are like a family or a tribe, in the sense of really forward thinking individuals who really want to leverage business to create social environmental and cultural change. They understand that, and so we’re just going to keep doing what we’re doing. The resources that they bring to the mix are going to be valuable for all levels of the business that we are integrating.”

Even as they found synergies, however, Karr said Guayaki’s desire to remain independent was the foundation of the deal.

“We like each other and we had a very frank conversation,” he said. “If there’s a desire for them to exit at some point in the future, we can look at way to get them out, but we weren’t tied to an exit so that we can continue to run [the company] as we want to run [it], because we plan to stay independent.”

But why now? In order to fund initiatives aimed at strengthening quality control in the production process and expanding product distribution, Karr said the company needed to raise capital. The deal with Sebastiani and Sonoma Brands allows Guayaki to further develop the infrastructure supporting its market driven regenerative business practices: Since its inception, Guayaki has made its vertically aligned supply chain— which involves sourcing organic, shade-raised yerba mate grown by Fair Trade Certified local farmers in the rainforests of South America— a key point of differentiation for the brand.

The next project, which is currently underway, is the construction of drying facilities for harvested crops in South America. When they are completed in six to 12 months, Karr said the facilities will give Guayaki greater supervision over the level or quality and volume that it wants to handle as it expands internationally. The company currently works with third-party drying services.

“We are looking at a drying facility because that’s the only part of the equation that is not under our control,” Karr said, adding that Guayaki doesn’t currently do its own canning but may consider doing so in the future. “So we’d like to have more transparency into our drying. And then we can also control timing better and harvest. It’s just a crucial step in the production of yerba mate.”

Beyond production, Guayaki also plans to expand its self-distribution operation, in which its products are transported via a fleet of fossil fuel-free trucks and trikes. “Our goal is to be completely electric,” said Karr, noting that the company is about 75 percent there so far. “It’s our model as we expand and go into new markets.”

Karr added that a portion of the new investment will be used to pay back some of Guayaki’s original shareholders.

Taking a broader look at the category of naturally caffeinated energy drinks, the landscape looks increasingly fertile. At last year’s National Association of Convenience Stores (NACS) show in October, PepsiCo showcased Yachak, a forthcoming non-carbonated organic yerba mate-based energy drink packaged in 12 oz. slim cans, as well as a new organic version of its AMP Energy line. The industry’s belief in the potential for natural energy was further underlined with Anheuser-Busch InBev’s acquisition of Hiball last June. All the while, Guayaki has continued to pick up momentum at retail for its sparkling and non-carbonated RTD mate products.

While Karr said he welcomed the growth of the yerba mate category, he noted that Guayaki’s mission-driven culture and outlook made it different from most beverage companies. Even with the injection of new financial resources, there is, as Karr said, “no end game for us except building this new paradigm-shifting business.”

“We are not in a hurry, we are not looking to sell and we don’t need to ramp according to someone else’s growth projections,” he said. “We are just always going to make the best long-term decisions.”

Founded in 1997, GUAYAKI is the leading yerba mate company in North America. Guayaki is a vertically integrated company deeply involved in the growing, harvesting, exportation, marketing, selling and distribution of certified organic, fairly trade...